In re PokerTek Merger Litigation

• Decision Date: 22 January 2015
• Docket Number: 14 CVS 9215,14 CVS 10579,14 CVS 9271,14 CVS 8300,14 CVS 8911
• Citation: In re PokerTek Merger Litigation, 2015 NCBC 8, 14 CVS 10579, 14 CVS 8300, 14 CVS 8911 (N.C. Super. Ct. Jan 22, 2015)
• Court: Superior Court of North Carolina
• Parties: In re PokerTek Merger Litigation

2015 NCBC 8

In re PokerTek Merger Litigation

Nos. 14 CVS 10579, 14 CVS 8300, 14 CVS 8911, 14 CVS 9215, 14 CVS 9271

Superior Court of North Carolina, Mecklenburg

January 22, 2015

Wallace & Graham, P.A. by John Hughes and Mona Lisa Wallace, and Levi & Korsinky LLP by Donald J. Enright and Elizabeth K. Tripodi, for PlaintiffArkady Sandler.

The Rabon Law Firm, PLLC by Gary W. Jackson, Brodsky & Smith, LLC by Evan J. Smith and Marc Akerman, Rigrodsky & Long, P.A. by Seth Rigrodsky, Brian D. Long and Gina Serra, The Rosen Law Firm, P.A. by Phillip Kim, and The Briscoe Law Firm by Willie C. Briscoe, for PlaintiffsRobert Simmer, Jeffrey Weber, James Dabord, Herald Stephens and Luis Lobo.

McGuire Woods LLP by Irving M. Brenner for DefendantsJoseph J. Lahti, Lyle A. Berman, Gehrig H. White, Arthur L. Lomax, James T. Crawford, III and PokerTek, Inc.

Wyrick Robbins Yates & Ponton, LLP by Charles George and Lee M. Whitman, Cadwalader, Wickersham & Taft LLP by Gregory A. Markel, and Morse Zelnick Rose & Lander, LLP by Kenneth S. Rose for Defendants Multimedia Games, Inc. and 23 Acquisition Co.

ORDER AND FINAL JUDGMENT

Bledsoe, Judge.

{1} THIS MATTER is before the Court on Plaintiffs' Motion for Final Approval of Settlement("Approval Motion") and Plaintiffs' Motion for Award of Attorneys' Fees and Expenses, each filed with supporting briefs on December 23, 2014, and arising from a settlement stipulation conditionally entered on or about September 19, 2014, and subsequently finalized subject to Court approval (the "Settlement"), implementing an earlier tentative settlement subject to confirmatory discovery.Appropriate notice to potential class members following the Court's preliminary approval of the Settlement was sent, and no objection to the Settlement has been made.The Court held a final fairness hearing at which it examined Plaintiffs' counsel, and the Court is satisfied as to the fairness, reasonableness, and adequacy of the Settlement and the fairness and reasonableness of the fees and costs requested.The Court now GRANTS each of the Motions, CERTIFIES the class as defined below for purposes of the Settlement only, APPROVES the Settlement, AWARDS the requested attorneys' fees and costs, and ENTERS FINAL JUDGMENT for the reasons indicated below.

I.NATURE OF THE DISPUTE

{2}PlaintiffsRobert Simmer("Simmer"), Jeffrey Weber("Weber"), James Dabord("Dabord"), Herald J. Stephens("Stephens"), Luis Lobo("Lobo") and Arkady Sandler("Sandler") are former shareholders of DefendantPokerTek, Inc.("PokerTek").

{3} On April 29, 2014, PokerTek entered into a definitive Merger Agreement with Defendant23 Acquisition Co.("Merger Sub"), a North Carolina corporation and a wholly owned subsidiary of Multimedia Games, Inc.("Multimedia").Merger Sub was formed solely to facilitate the merger with PokerTek.

{4} PokerTek announced the Merger Agreement on April 30, 2014.The Merger Agreement grew out of a process that had begun in early January 2011, continued throughout the next three years, and ultimately involved discussions with fourteen separate parties concerning a possible business combination transaction.After engaging in preliminary discussions with a number of parties and retaining Northeast Securities, Inc.("Northeast") as its financial advisor in May 2012 and again in May 2013, PokerTek ultimately engaged Burrill Securities, LLC("Burrill") as its financial advisor on April 9, 2014.The closing price per share of PokerTek Common Stock on the Nasdaq Capital Market was $0.98 at the time the Merger Agreement was executed on April 29, 2014.The Merger Agreement provided for a share purchase value of $1.35, yielding an overall merger valuation of $12.6 million.

{5} Simmer was the first to file a Complaint challenging the merger on May 9, 2014.Shortly thereafter, Weber and Dabord filed a Complaint on May 15, 2014, ^[1]Stephens filed a Complaint on May 16, 2014, and Lobo filed a Complaint on May 19, 2014.In addition to the corporate Defendants, the actions were brought against the individual members of PokerTek's Board of Directors.^[2] Each Complaint alleged that the individual Defendants had breached their fiduciary duties, including by their alleged breaches of the duties of care, good faith, loyalty, and candor; failures to disclose material information; self-dealing; failure to secure adequate merger consideration; and agreeing to unreasonable deal-protection measures.Each Complaint further alleged that the corporate Defendants aided and abetted the individual Defendants' alleged breach of their fiduciary duties.

{6} PokerTek filed its Preliminary Proxy Statement on May 23, 2014.

{7} Sandler filed a Verified Class Action and Shareholder Derivative Complaint against the same Defendants on June 9, 2014.Sandler's Complaint contained direct and derivative claims against the individual Defendants for breach of fiduciary duty and against the corporate Defendants for aiding and abetting that alleged breach.Sandler's Complaint placed greater emphasis on the individual Defendants' alleged failures to disclose material information than did the earlier-filed Complaints.In particular, Sandler contended that PokerTek had failed to disclose certain financial projections PokerTek provided to Burrill for the 2014 – 2019 time period, the contents of the confidentiality agreements PokerTek entered with eight potential bidders for the company (including whether standstill provisions barring superior offers were negotiated with these parties), the terms and circumstances concerning the retention of PokerTek's financial advisors (first Northeast and then Burrill), and certain information underlying Burrill's various financial analyses supporting its fairness opinion.

{8} Each of the five actions was designated as a mandatory complex business case, assigned to this Court(Murphy, J.), and subsequently reassigned to the undersigned on July 2, 2014.^[3]

{9}The Court consolidated the five actions on July 8, 2014, (the "Consolidated Action"), and on July 21, 2014, appointed Plaintiffs' lead counsel and liaison counsel, each having extensive, well-documented experience and success in this type of litigation.

{10} The claims in the Sandler Verified Complaint were asserted on behalf of a purported class of PokerTek common stockholders as of April 29, 2014, exclusive of persons or entities closely associated with Defendants.The Sandler Verified Complaint alternatively alleged direct and derivative claims.Plaintiffs did not make a demand upon PokerTek before bringing their initial actions but instead claimed that the Verified Complaint was an adequate demand, and asserted that making a demand upon PokerTek after the initiation of litigation satisfied any statutory demand requirement.

{11} PokerTek filed its Final Proxy Statement on June 19, 2014.

{12}The parties negotiated an expedited discovery process.Plaintiffs thereafter engaged in expedited document review with Defendants' consent, reviewing some 3, 100 pages of confidential documents of PokerTek, and, on July 11, 2014, filed a Motion for Preliminary Injunction to enjoin the merger, which was scheduled for a shareholder vote on July 24, 2014.

{13} On July 13, 2014, the parties entered a Memorandum of Understanding ("MOU"), resolving all claims, subject to confirmatory discovery.The Settlement focused on Plaintiffs' disclosure-based claims.Pursuant to the MOU, PokerTek made supplemental disclosures by filing a Form 8-K on July 14, 2014.

{14} The shareholder vote was held as scheduled on July 24, 2014, at which 6, 304, 156 shares voted in favor of the merger, 264, 471 shares voted against, and 1, 600 shares abstained.

{15}Plaintiffs conducted confirmatory discovery in accordance with the provisions of the MOU, which included the depositions of Defendant Lahti (PokerTek's board chair and lead independent director) and a designee of Burrill.

{16}The parties executed a Stipulation and Agreement of Compromise, Settlement and Release ("Stipulation") on September 19, 2014.Plaintiffs then submitted the Stipulation with their Unopposed Motion for Preliminary Approval of the Settlement on September 22, 2014.

{17} The merger transaction was consummated on October 1, 2014, and PokerTek was merged out of existence that day.

{18}The Court issued its Preliminary Approval Order on October 6, 2014, preliminarily certifying the Settlement Class, directing that notice be given, and setting a Settlement Hearing for December 4, 2014.

{19} On November 7, 2014, the Court granted Defendants' Unopposed Motion to Amend the Preliminary Approval Order with Respect to the Time for Provision of Notice and Resetting the Settlement Hearing Date and issued an Amended Preliminary Approval Order extending the period for giving notice and rescheduling the Settlement Hearing for January 13, 2015.

{20} PokerTek engaged Kurtzman Carson Consultants, LLC("KCC") as an agent to undertake the mailing of notice of the Settlement as directed by the Court.As of January 7, 2015, KCC had mailed 2, 088 notices to at least 1, 215 recipients.

{21}The Court held the Settlement Hearing on January 13, 2015.Neither the Court, the parties, nor KCC received any objection to the Settlement, either before, during, or after the fairness hearing.

II.CLASS CERTIFICATION

{22} As Judge Gale has recently observed, "this Court has broad discretion in determining whether a case should continue as a class action."In re Harris Teeter Merger Litig., 2014 NCBC 44 ¶ 23 (N.C. Super. Ct. Sept. 24, 2014), www.ncbusinesscourt.net/opinions/2014_NCBC_44.pdf (approving final settlement);Harrison v. Wal-Mart Stores, Inc., 170 N.C.App. 545, 547, 613 S.E.2d 322, 325(2005)(citingFaulkenbury v. Teachers' and State Employees' Ret. Sys. of N.C., 345 N.C. 683, 699, 483 S.E.2d 422, 432(1997)).Class certification is controlled by North Carolina Rule of Civil Procedure 23, and our courts have provided that a trial court...